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FILE - In this Tuesday, Nov. 6, 2012, file photo, people are served breakfast in the Nutcracker Restaurant in Pataskala, Ohio. U.S. service companies grew at a slightly faster pace in November because sales and new orders rose, a good sign for the economy. The Institute for Supply Management says its index of non-manufacturing activity rose to 54.7 from 54.2 in October. Any reading above 50 indicates expansion. November's figure is above the 12-month average of 54.4. (AP Photo/Michael E. Keating)

Wednesday, December 05, 2012 11:24 am

Growth of US service firms accelerated last month

By CHRISTOPHER S. RUGABERAP Economics Writer

U.S. service companies grew at a slightly faster pace in November because sales and new orders rose, a good sign for the economy.

The Institute for Supply Management said Wednesday that its index of non-manufacturing activity rose to 54.7 from 54.2 in October. Any reading above 50 indicates expansion. November's figure is above the 12-month average of 54.4.

The report measures growth in a broad range of businesses from retail and construction companies to health care and financial services firms. The industries covered employ about 90 percent of the work force.

A measure of employment fell to the lowest level since July but still showed companies added workers last month.

One reason for the decline was that Superstorm Sandy forced many businesses to close in November, economists noted.

And some companies may be postponing hiring because of worries over the "fiscal cliff." That's the name for automatic tax increases and spending cuts that are scheduled for early next year, unless the White House and Congress can negotiate a deal that averts them.

"For many businesses, hiring plans are on hold until the New Year, when - we expect - the fiscal cliff will be resolved," Paul Edelstein, an economist at IHS Global Economics, said in a note to clients.

Other economists said the small increase in the services index points to underlying strength in the economy.

The report "supports our view that conditions should look a bit better in a few months' time when all the distortions have unwound," Paul Dales, an economist at Capital Economics, said.

Service companies have been a key source of job growth this year. They have created about 90 percent of the net jobs added since January. Still, many of the new service jobs have been low-paying retail and restaurant positions.

The November report suggests that Superstorm Sandy may have actually helped some businesses. A company in the wholesale trade industry said its business benefited "tremendously" from shipping emergency supplies.

Most other economic reports have shown that the storm slowed activity last month.

Sandy tore through the Northeast on Oct. 29, shutting down businesses and cutting off power to 8 million homes in 10 states. The storm reduced consumer spending and incomes in October, the government said last week.

The overall economy grew at an annual rate of 2.7 percent in the July-September quarter, up from 1.3 percent growth in the April-June period.

The ISM reported last week that its separate index for manufacturing showed manufacturing fell to its lowest level since July 2009, one month after the recession ended. Businesses are ordering fewer manufactured goods because of worries that taxes will rise sharply and government spending will be cut early next year.